Heritage Financial Group, Inc. (NASDAQ: HBOS), the holding company for HeritageBank of the South, today announced unaudited financial results for the quarter and year ended December 31, 2012. Highlights of the Company's results for the year ended 2012 include:

Net income of $6.8 million or $0.85 per diluted share, up 77% from net income of $3.8 million or $0.47 per diluted share for the year ended 2011;

Excluding special items for each year, net income was $5.4 million or $0.67 per diluted share for 2012 versus net income of $1.6 million or $0.19 per diluted share for 2011 (see reconciliation of non-GAAP items);

Loan growth for the year, excluding loans acquired through FDIC-assisted acquisitions, of $151.3 million or 35% from 2011;

A decrease in loans acquired through FDIC-assisted acquisitions for the year of $41.9 million or 33% from 2011;

A decrease in provision for loan losses, excluding FDIC-acquired loans, of $395,000 to $2.5 million for the year compared with $2.9 million for 2011;

Provision for loan losses of $3.4 million for FDIC-acquired loans with approximately 80% of the losses reimbursable by the FDIC versus no provision expense on such loans for 2011; and

A decrease in net charge-offs to 0.19% for the year compared with 0.82% for 2011.

Commenting on the results, Leonard Dorminey, President and Chief Executive Officer, said, "During 2012, our team worked hard to explore new opportunities for growth, effectively assimilate our recent acquisitions to capitalize on the benefits of that expansion, and optimize our operations at every level of our organization. Those efforts paid off handsomely in 2012 with significantly increased earnings, robust organic loan growth, and strong contributions from our mortgage banking and brokerage departments. Moreover, during 2012, we implemented several expense management initiatives that are anticipated to reduce costs by approximately $1.2 million in 2013.

"While we expect to face ongoing challenges in 2013 regarding both the competitive and interest rate environments, we remain confident in our outlook for the coming year," Dorminey continued. "Considering the fundamental strength of our operations, the success we have achieved in integrating recent acquisitions, our expanded footprint in the Southeast, and bolstered by anticipated cost reductions, we look forward to a successful and promising year in 2013."

Expense Management Initiatives

During the third quarter of 2012, the Company completed an early retirement program for certain employees announced during the second quarter of 2012 at a cost of $641,000. It is anticipated that the early retirement program will generate annual savings of approximately $700,000 per year beginning in 2013.

Additionally, during the fourth quarter of 2012, the Company closed two branches, one each in Collins and Guyton, Georgia, which were acquired in FDIC-assisted acquisitions. Combined, these branches had loans of approximately $5 million and deposits of $13 million. The Company does not expect to experience a significant reduction in customer relationships in these areas and will seek to service these customers from nearby branches. The Company anticipates expense savings of approximately $500,000 per year beginning in 2013 related to these closures.

Capital Management Initiatives

During the fourth quarter of 2012, the Company paid a special one-time dividend of $0.20 per share in addition to the normal quarterly dividend of $0.04 per share. The special one-time dividend was equivalent to and in lieu of regular quarterly dividends that would have been anticipated to be paid in 2013. The Company also repurchased approximately 73,000 shares of common stock at an average price of $13.50 under its stock repurchase program. The program, which expires in October 2013 unless extended or otherwise completed, has a remaining authorization to repurchase approximately 324,000 shares.

During the fourth quarter of 2012, the Company's previously announced shelf offering on Form S-3 with the Securities and Exchange Commission ("SEC") became effective. Under the shelf registration statement, the Company may offer and sell from time to time in the future, in one or more offerings, common stock, preferred stock, debt securities, warrants, depositary shares, or units consisting of any combination of the foregoing. The aggregate offering price of all securities that could be sold under the registration statement may not exceed $60 million.

The Company's estimated total risk-based capital ratio at December 31, 2012, was 18.4%, significantly exceeding the required minimum of 10% to be considered a well-capitalized institution. The ratio of tangible common equity to total tangible assets was 10.6% as of December 31, 2012.

Looking ahead, the Company intends to maintain its capital strength at the current level to support growth and its acquisition activities. Accordingly, future stock buybacks and future dividends will be premised largely on the Company's future earnings power rather than a return of capital to stockholders. As previously announced, it is not currently anticipated that any quarterly dividends will be paid in 2013, but that regular quarterly dividends will be reinstated in 2014.

Fourth Quarter 2012 Results of Operations

Highlights of the Company's results for the fourth quarter of 2012 include:

Net income of $2.4 million or $0.31 per diluted share, up 80% from net income of $1.4 million or $0.17 per diluted share for the fourth quarter of 2011 and up 22% from $2.0 million or $0.25 per diluted share for the third quarter of 2012;

Excluding special items for each quarter, net income was $1.2 million or $0.16 per diluted share for the fourth quarter of 2012 versus net income of $1.0 million or $0.13 per diluted share for the year-earlier quarter and $1.5 million or $0.19 per diluted share for the third quarter of 2012 (see reconciliation of non-GAAP items);

Loan growth, excluding loans acquired through FDIC-assisted acquisitions, of $151.3 million or 35% for 2012 and $43.8 million or 8% on a linked-quarter basis;

A decrease in loans acquired through FDIC-assisted acquisitions of $41.9 million or 33% for 2012 and a decrease of $8.8 million or 9% on a linked-quarter basis;

A slight increase in provision for loan losses, excluding FDIC-acquired loans, of $5,000 to $600,000 for the fourth quarter of 2012 compared with $595,000 for the same quarter for 2011 and a decrease of $150,000 compared with $750,000 for the third quarter of 2012;

Provision for loan losses for the fourth quarter of 2012 of $1.9 million for FDIC-acquired loans with approximately 80% of the losses reimbursable by the FDIC compared with no provision expense on such loans for the fourth quarter of 2011 and $1.2 million for the third quarter of 2012; and

Annualized net charge-offs of 0.05% for the fourth quarter of 2012 were in line with the 0.04% experienced for the fourth quarter of 2011 and represented a significant decline from 0.24% for the third quarter of 2012.

The $1.1 million improvement in reported quarterly earnings for the fourth quarter of 2012 compared with the same period in 2011 primarily resulted from the following items:

Improved net interest income of $5.3 million; offset by

Reduced non-interest income of $300,000;

Increased non-interest expense of $1.6 million; and

Increased provision expense for FDIC-acquired loan losses of $1.9 million, with approximately 80% of the losses reimbursable by the FDIC.

Net interest income for the fourth quarter of 2012 increased 58% to $14.5 million from $9.2 million in the year-earlier quarter, primarily reflecting an increase in interest-earning assets related to both acquisitions and organic growth and a reduction in the cost of interest-bearing deposits. The Company's net interest margin was 6.37% for the fourth quarter of 2012, an increase of 60 basis points over 5.77% on a linked-quarter basis and 218 basis points over 4.19% in the year-earlier period. The improvement in the fourth quarter of 2012 net interest margin on a linked-quarter basis was driven by an increase in loan yields on the Company's FDIC-assisted loan portfolios, coupled with a decline in the cost of interest-bearing deposits as rates continue to reset to lower levels. Excluding purchase accounting adjustments, which include FDIC-assisted loan discount accretion from the net interest margin, the core net interest margin was 3.19% for the fourth quarter of 2012, an increase of 77 basis points from 2.42% for the same quarter in 2011, but a decline of 13 basis points from 3.32% on a linked-quarter basis.

In the fourth quarter of 2012, the Company continued to achieve loan growth, with its loan portfolio increasing $43.8 million organically on a linked-quarter basis and advancing $151.3 million overall compared with the year-earlier quarter. For the fourth quarter of 2012, the Company's loan portfolio, including loans acquired through FDIC-assisted acquisitions, totaled $670.0 million, which increased $35.1 million on a linked-quarter basis. Total deposits stood at $869.6 million at the end of the fourth quarter of 2012, up 3% or $24.5 million on a linked-quarter basis from $845.1 million, but down from $884.2 million compared with the year-earlier quarter. The linked-quarter increase in deposits was primarily driven by core deposit growth of $15.2 million and wholesale deposit growth of $22.8 million offset in part by $13.5 million in planned runoff of retail time deposits.

Non-interest income for the fourth quarter of 2012 decreased 9% to $2.9 million from $3.2 million in the year-earlier quarter, primarily driven by a negative swing in the accretion for the FDIC loss-share receivable of $2.7 million, which was partially offset by an increased gain on sale of securities of $1.3 million and improvements in mortgage banking fees of $685,000, brokerage fees of $165,000, and bankcard services income of $103,000. Non-interest expense for the fourth quarter of 2012 increased 15% to $12.1 million from $10.5 million in the year-earlier quarter, primarily driven by increased foreclosure expense on FDIC-acquired assets of $457,000, increased salaries and employment benefits of $410,000, increased foreclosure expense, excluding FDIC-acquired assets, of $332,000, and loss on sale and write-downs of other real estate assets, excluding FDIC-acquired, of $307,000.

Accounting for FDIC-Assisted Loans

The Company performs ongoing assessments of the estimated cash flows of its acquired FDIC-assisted loan portfolios. The fair value of the FDIC-assisted loan portfolios consisted of $72.4 million in covered and $11.9 million in non-covered loans at the end of the fourth quarter of 2012 compared with $78.8 million in covered and $14.3 million in non-covered loans at the end of the third quarter of 2012. The principal balance of the FDIC-assisted loan portfolios totaled $152.1 million at the end of the fourth quarter of 2012 compared with $171.6 million as of the end of the third quarter of 2012. The details of the accounting for the FDIC-assisted loan portfolios for the fourth quarter of 2012 are as follows:

The non-accretable discount decreased $8.2 million to $46.0 million; and

The accretable discount decreased $2.6 million to $21.8 million.

For the fourth quarter of 2012, provision expense of $1.9 million was recorded for loan charge-offs on individually assessed loans acquired in FDIC-assisted acquisitions not provided for by the discount, with approximately 80% of the charge-offs reimbursable by the FDIC. The provision expense for these loans did not affect the Company's loan loss reserve. The FDIC loss-share receivable associated with covered FDIC-assisted loans decreased $7.0 million from $67.7 million for the prior quarter to $60.7 million, primarily driven by reimbursements received from the FDIC of $4.0 million and negative accretion of $2.8 million affecting the loss-share receivable asset associated with the improvement in expected cash flows of the loss-share performing portfolios. A FDIC true-up (claw back) liability was recorded as an expense, which reduced non-interest income for the current quarter by $219,000. This true-up was driven by an improvement in estimates of expected cash flows for both FDIC-assisted acquisitions covered under loss-sharing agreements.

The non-accretable discount decreased to $46.0 million at the end of the fourth quarter of 2012 from $54.2 million on a linked-quarter basis, primarily driven by the clearing of $4.2 million of discount in conjunction with the resolution of FDIC-assisted loans and transfers to accretable discount of $4.0 million. The accretable discount decreased to $21.8 million for the fourth quarter of 2012 from $24.4 million on a linked-quarter basis, primarily due to loan discount accretion of $6.6 million for the current quarter, which compares with $4.8 million on a linked-quarter basis partially offset by the transfer from the non-accretable discount as a result of the improvement in cash flows.

Asset Quality

Annualized net charge-offs to average outstanding loans, excluding loans acquired in FDIC-assisted acquisitions, were 0.05% for the fourth quarter of 2012 compared with 0.24% for the linked-quarter and in line with the 0.04% experienced for the fourth quarter of 2011. Total non-performing assets, excluding assets acquired in FDIC-assisted acquisitions, decreased to $17.3 million or 1.58% of total assets compared with $17.8 million or 1.68% of total assets for the linked-quarter, but increased from $10.4 million or 0.95% of total assets from 2011. Non-performing loans totaled $14.7 million, down from $16.4 million for the linked-quarter, but up from $7.0 million for 2011.

The primary reason for the increase in non-performing assets from 2011 was the migration of two relationships totaling $6.0 million to non-performing status during the third quarter of 2012. One of the relationships totaling $3.5 million was classified a troubled-debt restructuring and additional collateral of $6.1 million has been secured. The other relationship was a Chapter 11 bankruptcy where the collateral deficiency is fully reserved as of the current quarter. Both of these relationships were previously identified as criticized assets. Other real estate owned and repossessed assets, excluding assets acquired in FDIC-assisted acquisitions, totaled $2.7 million for the fourth quarter of 2012, up from $1.4 million for the linked-quarter, but down from $2.9 million for 2011.

The provision for loan losses on non-FDIC-acquired loans slightly increased to $600,000 for the fourth quarter of 2012 from $595,000 for the same quarter in 2011, primarily driven by organic loan growth offset in part by improving net charge-off trends. For the fourth quarter in 2012, the allowance for loan losses represented 1.55% of total loans outstanding, excluding loans acquired in FDIC-assisted acquisitions, versus 1.57% for the linked-quarter and 1.72% for the same quarter in 2011.

About Heritage Financial Group, Inc. and HeritageBank of the South

Heritage Financial Group, Inc. is the holding company for HeritageBank of the South, a community-oriented bank serving primarily South Georgia, North Central Florida and Eastern Alabama through 20 full-service branch locations, 13 mortgage offices, and 4 investment offices. As of December 31, 2012, the Company reported total assets of approximately $1.1 billion and total stockholders' equity of approximately $121 million. For more information about the Company, visit HeritageBank of the South on the Web at www.eheritagebank.com and see Investor Relations under About Us.

Cautionary Note Regarding Forward Looking Statements

Except for historical information contained herein, the matters included in this news release and other information in the Company's filings with the Securities and Exchange Commission may contain certain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words or phrases "opportunities," "prospects," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions. The forward-looking statements made herein represent the current expectations, plans or forecasts of the Company's future results and revenues. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and includes this statement for purposes of these safe harbor provisions. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond the Company's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. Investors should not place undue reliance on any forward-looking statement and should consider the uncertainties and risks, discussed under Item 1A. "Risk Factors" of the Company's 2011 Annual Report on Form 10-K and in any of the Company's subsequent SEC filings. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in its other filings with the SEC.

* The effective tax rate is used for the period presented to determine net of tax amounts.

Net Income and Diluted Earnings Per Share are presented in accordance with Generally Accepted Accounting Principles (GAAP). Adjusted Noninterest Income, Adjusted Noninterest Expense, Adjusted Net Income and Adjusted Diluted Earnings Per Share are non-GAAP financial measures. The Company believes that these non-GAAP measures aid in understanding and comparing current-year and prior-year results, both of which include unusual items of different natures. These non-GAAP measures should be viewed in addition to, and not as a substitute for, the Company's reported results.

HERITAGE FINANCIAL GROUP, INC.

Unaudited Financial Highlights

(Dollars in thousands, except per share data)

Three Months EndedDecember 31,

Twelve Months Ended

December 31,

2012

2011

2012

2011

Interest income

$

16,351

$

11,569

$

54,738

$

39,449

Interest expense

1,821

2,357

7,613

10,350

Net interest income

14,530

9,212

47,125

29,099

Provision for loan losses

600

595

2,500

2,895

Provision for loan losses – covered

1,907

–

3,418

–

Provision for loan losses – non covered

–

–

12

–

Net interest income after provision

for loan losses

12,023

8,617

41,195

26,204

Non-interest income

2,873

3,172

13,696

17,467

Non-interest expense

12,095

10,528

45,549

38,746

Income before income taxes

2,801

1,261

9,342

4,925

Income tax expense (benefit)

373

(91

)

2,585

1,100

Net income

$

2,428

$

1,352

$

6,757

$

3,825

Net income per share:

Basic

$

0.31

$

0.17

$

0.85

$

0.47

Diluted

$

0.31

$

0.17

$

0.85

$

0.47

Weighted average shares outstanding:

Basic

7,720,839

8,139,992

7,969,104

8,188,843

Diluted

7,722,867

8,140,905

7,970,903

8,190,062

Dividends declared per share

$

0.24

$

0.03

$

0.36

$

0.12

Dec. 31,

2012

Sept. 30,

2012

Dec. 31,

2011

Total assets

$

1,097,506

$

1,054,899

$

1,089,852

Cash and cash equivalents

23,993

22,016

34,521

Interest-bearing deposits in banks

15,393

17,026

43,101

Securities available for sale

221,406

209,287

259,017

Loans

670,004

634,932

560,620

Allowance for loan losses

9,061

8,530

7,494

Total deposits

869,554

845,079

884,187

Federal Home Loan Bank advances

60,000

35,000

35,000

Stockholders' equity

120,649

121,792

124,136

Heritage Financial Group, Inc.

Fourth Quarter 2012 Earnings Release Supplement

(Unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2012

2011

2012

2011

Income Statement Data

Interest income

Loans

$

15,084

$

9,945

$

48,831

$

33,428

Loans held for sale

238

198

967

297

Securities - taxable

762

1,095

3,681

4,536

Securities - nontaxable

232

251

1,123

880

Federal funds sold

9

15

30

60

Interest-bearing deposits in banks

26

65

106

248

Total interest income

16,351

11,569

54,738

39,449

Interest expense

Deposits

1,108

1,671

4,874

7,550

Other borrowings

713

686

2,739

2,800

Total interest expense

1,821

2,357

7,613

10,350

Net interest income

14,530

9,212

47,125

29,099

Provision for loan losses

600

595

2,500

2,895

Provision for loan losses - FDIC acquired covered

1,907

-

3,418

-

Provision for loan losses - FDIC acquired non covered

-

-

12

-

Net interest income after provision for loan losses

12,023

8,617

41,195

26,204

Non-interest income

Service charges on deposit accounts

1,307

1,237

4,748

4,777

Bankcard services income

794

691

3,231

2,637

Other service charges, fees & commissions

89

99

326

305

Brokerage fees

463

298

1,838

1,386

Mortgage banking activities

1,451

763

4,768

2,377

Bank owned life insurance

210

148

771

588

Impairment loss on securities available for sale

-

(43

)

-

(43

)

Gain on sale of securities

1,285

18

2,838

684

Gain (loss) on acquisitions

-

-

(56

)

4,217

Accretion of FDIC loss-share receivable

(2,792

)

(72

)

(5,028

)

381

Other

66

33

260

158

Total non-interest income

2,873

3,172

13,696

17,467

Non-interest expense

Salaries and employee benefits

6,167

5,758

23,543

20,393

Equipment and occupancy

1,597

1,314

5,632

4,276

Advertising & marketing

147

233

656

785

Professional fees

387

224

1,319

1,303

Information services expenses

1,184

1,130

4,641

3,676

(Gain) loss on sale and write-downs of other real estate owned

277

(30

)

219

767

Gain on sale and write-downs of FDIC acquired other real estate

(204

)

(92

)

(313

)

(383

)

Foreclosed asset expenses

353

22

970

725

Foreclosed FDIC acquired asset expenses

575

118

1,767

118

FDIC insurance and other regulatory fees

252

179

1,037

954

Acquisition related expenses

3

254

418

1,309

Deposit Intangible expense

191

207

781

692

Other operating

1,166

1,211

4,879

4,131

Total non-interest expense

12,095

10,528

45,549

38,746

Income before taxes

2,801

1,261

9,342

4,925

Applicable income tax (benefit)

373

(91

)

2,585

1,100

Net income

$

2,428

$

1,352

$

6,757

$

3,825

Weighted average shares - basic

7,720,839

8,139,992

7,969,104

8,188,843

Weighted average shares - diluted

7,722,867

8,140,905

7,970,903

8,190,062

Basic earnings per share

$

0.31

$

0.17

$

0.85

$

0.47

Diluted earnings per share

0.31

0.17

0.85

0.47

Cash dividend declared per share

0.24

0.03

0.36

0.12

Heritage Financial Group, Inc.

Fourth Quarter 2012 Earnings Release Supplement

(Unaudited)

(Dollars in thousands, except per share data)

December 31,

2012

2011

Balance Sheet Data (Ending Balance)

Total loans

$

670,004

$

560,620

Loans held for sale

15,608

7,471

Covered loans

72,425

107,457

Allowance for loan losses

9,061

7,494

Total foreclosed assets

12,709

13,441

Covered other real estate owned

9,457

10,084

FDIC loss-share receivable

60,731

83,901

Intangible assets

4,235

4,848

Total assets

1,097,506

1,089,852

Non-interest-bearing deposits

116,272

78,823

Interest-bearing deposits

753,282

805,364

Federal Home Loan Bank advances

60,000

35,000

Federal funds purchased and securities sold under agreement to repurchase

33,219

35,049

Stockholders' equity

120,649

124,136

Total shares outstanding

8,172,486

8,712,031

Unearned ESOP shares

385,836

439,138

Total shares outstanding net of unearned ESOP

7,786,650

8,272,893

Book value per share

$

15.49

$

15.01

Book value per share including unearned ESOP (non-GAAP)

14.76

14.25

Tangible book value per share (non-GAAP)

14.95

14.42

Tangible book value per share including unearned ESOP (non-GAAP)

14.24

13.69

Market value per share

13.79

11.80

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2012

2011

2012

2011

Average Balance Sheet Data

Average interest-bearing deposits in banks

$

29,422

$

56,025

$

27,112

$

55,090

Average federal funds sold

12,842

22,805

11,670

23,416

Average investment securities

211,524

240,101

240,198

220,163

Average loans

647,476

559,556

604,351

513,027

Average mortgage loans held for sale

11,161

7,599

6,871

4,154

Average FDIC loss-share receivable

65,534

86,544

75,813

61,128

Average earning assets

912,134

878,487

887,702

815,686

Average assets

1,087,078

1,085,490

1,071,075

988,496

Average noninterest-bearing deposits

115,014

80,376

96,077

70,120

Average interest-bearing deposits

747,632

801,246

765,287

707,286

Average total deposits

862,646

881,622

861,364

777,406

Average federal funds purchased and securities sold under agreement to repurchase

34,324

36,621

33,528

33,390

Average Federal Home Loan Bank advances

50,489

35,000

38,975

46,365

Average interest-bearing liabilities

131,706

872,867

108,692

78,627

Average stockholders' equity

122,927

124,257

124,593

122,727

Performance Ratios

Annualized return on average assets

0.89

%

0.51

%

1.26

%

0.77

%

Annualized return on average equity

7.90

%

4.49

%

10.85

%

6.23

%

Net interest margin

6.37

%

4.19

%

5.35

%

3.41

%

Net interest spread

6.30

%

4.17

%

5.30

%

3.58

%

Core net interest margin

3.19

%

2.42

%

3.20

%

2.98

%

Core net interest spread

3.05

%

2.27

%

3.07

%

2.81

%

Efficiency ratio

69.50

%

85.01

%

74.89

%

83.21

%

Capital Ratios

Average stockholders' equity to average assets

11.3

%

12.7

%

11.6

%

12.4

%

Tangible equity to tangible assets (non-GAAP)

10.6

%

12.3

%

10.6

%

11.0

%

Tier 1 leverage ratio (1)

11.0

%

11.2

%

11.0

%

11.2

%

Tier 1 risk-based capital ratio (1)

17.2

%

21.2

%

17.2

%

21.2

%

Total risk-based capital ratio (1)

18.4

%

22.4

%

18.4

%

22.4

%

Other Information

Full-time equivalent employees

321

327

321

327

Banking

264

286

264

286

Mortgage

50

34

50

34

Investments

7

7

7

7

Number of full-service offices

20

22

20

22

Mortgage loan offices

13

11

13

11

Investment offices

4

3

4

3

(1)

December 31, 2012 consolidated ratios are estimated and may be subject to change pending the filing of the call report; all other periods are presented as filed.

Heritage Financial Group, Inc.

Fourth Quarter 2012 Earnings Release Supplement

(Unaudited)

(Dollars in thousands, except per share data)

Five Quarter Comparison for the Three Months Ended

12/31/12

9/30/12

6/30/12

3/31/12

12/31/11

Income Statement Data

Interest income

Loans

$

15,084

$

13,067

$

10,532

$

10,147

$

9,945

Loans held for sale

238

342

204

182

198

Securities - taxable

762

924

1,016

979

1,095

Securities - nontaxable

232

298

295

299

251

Federal funds sold

9

3

4

15

15

Interest-bearing deposits in banks

26

17

26

37

65

Total interest income

16,351

14,651

12,077

11,659

11,569

Interest expense

Deposits

1,108

1,257

1,246

1,263

1,671

Other borrowings

713

681

672

672

686

Total interest expense

1,821

1,938

1,918

1,935

2,357

Net interest income

14,530

12,713

10,159

9,724

9,212

Provision for loan losses

600

750

750

400

595

Provision for loan losses - FDIC acquired covered

1,907

1,172

338

-

-

Provision for loan losses - FDIC acquired non covered

-

12

3

-

-

Net interest income after provision for loan losses

12,023

10,779

9,068

9,324

8,617

Non-interest income

Service charges on deposit accounts

1,307

1,285

1,135

1,020

1,237

Bankcard services income

794

783

831

824

691

Other service charges, fees & commissions

89

80

73

85

188

Brokerage fees

463

467

462

446

298

Mortgage banking activities

1,451

1,689

938

689

674

Bank owned life insurance

210

210

211

140

148

Life insurance proceeds

-

-

-

-

-

Impairment loss on securities available for sale

-

-

-

-

(43

)

Gain on sale of securities

1,285

1,484

27

42

18

Gain (loss) on acquisitions

-

(90

)

34

-

0

Accretion of FDIC loss-share receivable

(2,792

)

(1,606

)

(133

)

(498

)

(72

)

Other

66

59

101

35

33

Total non-interest income

2,873

4,361

3,679

2,783

3,172

Non-interest expense

Salaries and employee benefits

6,167

6,380

5,460

5,536

5,758

Equipment and occupancy

1,597

1,317

1,395

1,324

1,314

Advertising & marketing

147

114

214

180

233

Professional fees

387

354

340

238

224

Information services expenses

1,184

1,240

1,163

1,052

1,130

(Gain) loss on sale and write-downs of other real estate owned

277

90

(141

)

(7

)

(27

)

Loss (gain) on sale and write-downs of FDIC acquired other real estate

(204

)

(33

)

(249

)

174

(92

)

Foreclosed asset expenses

353

177

218

221

22

Foreclosed FDIC acquired asset expenses

575

563

466

162

118

FDIC insurance and other regulatory fees

252

276

265

245

179

Acquisition related expenses

3

14

69

331

254

Deposit intangible expense

191

194

195

201

207

Other operating

1,166

1,292

1,279

1,144

1,208

Total non-interest expense

12,095

11,978

10,674

10,801

10,528

Income before taxes

2,801

3,162

2,073

1,306

1,261

Applicable income tax (benefit)

373

1,164

713

335

(91

)

Net income

$

2,428

$

1,998

$

1,360

$

971

$

1,352

Weighted average shares - basic

7,720,839

7,942,852

8,071,354

8,144,382

8,229,293

Weighted average shares - diluted

7,722,867

7,944,983

8,072,935

8,145,730

8,230,206

Basic earnings per share

$

0.31

$

0.25

$

0.17

$

0.12

$

0.17

Diluted earnings per share

0.31

0.25

0.17

0.12

0.17

Cash dividend declared per share

0.24

0.04

0.04

0.04

0.03

Heritage Financial Group, Inc.

Fourth Quarter 2012 Earnings Release Supplement

(Unaudited)

(Dollars in thousands, except per share data)

Five Quarter Comparison

12/31/12

9/30/12

6/30/12

3/31/12

12/31/11

Balance Sheet Data (at period end)

Total loans

$

670,004

$

634,932

$

605,001

$

562,495

$

560,620

Loans held for sale

15,608

7,236

6,017

4,731

7,471

Covered loans

72,425

78,757

87,386

95,493

107,457

Allowance for loan losses

9,061

8,530

8,099

7,629

7,494

Total foreclosed assets

12,709

11,458

9,290

12,117

13,441

Covered other real estate owned

9,457

9,457

7,571

8,445

10,084

FDIC loss-share receivable

60,731

67,698

76,294

82,925

83,901

Intangible assets

4,235

4,426

4,621

4,647

4,848

Total assets

1,097,506

1,054,899

1,063,426

1,075,510

1,089,852

Non-interest-bearing deposits

116,272

108,767

87,815

88,582

78,823

Interest-bearing deposits

753,282

736,312

772,453

780,161

805,364

Federal home loan bank advances

60,000

35,000

35,000

35,000

35,000

Federal funds purchased and securities sold under agreement to repurchase

33,219

35,833

31,746

37,227

35,049

Stockholders' equity

120,649

121,793

123,291

125,067

124,136

Total shares outstanding

8,172,486

8,229,955

8,490,247

8,668,752

8,712,031

Unearned ESOP shares

385,836

399,162

412,487

425,813

439,138

Total shares outstanding net of unearned ESOP

7,786,650

7,830,793

8,077,760

8,242,939

8,272,893

Book value per share

$

15.49

$

15.55

$

15.26

$

15.17

$

15.01

Book value per share including unearned ESOP (non-GAAP)

14.76

14.80

14.52

14.43

14.25

Tangible book value per share (non-GAAP)

14.95

14.99

14.69

14.61

14.42

Tangible book value per share including unearned ESOP (non-GAAP)

14.24

14.26

13.98

13.89

13.69

Market value per share

13.79

13.14

12.87

11.82

11.80

Five Quarter Comparison

12/31/12

9/30/12

6/30/12

3/31/12

12/31/11

Average Balance Sheet Data

Average interest-bearing deposits in banks

$

29,422

$

19,343

$

21,897

$

37,999

$

56,025

Average federal funds sold

12,842

5,471

6,038

22,363

22,805

Average investment securities

211,524

235,862

252,894

257,863

240,101

Average loans

647,476

625,464

583,366

560,385

559,556

Average mortgage loans held for sale

11,161

6,198

5,519

4,550

7,599

Average FDIC Loss-Share Receivable

65,534

74,045

79,812

84,017

86,544

Average earning assets

912,134

883,319

869,393

883,160

878,487

Average assets

1,087,078

1,070,130

1,053,140

1,074,260

1,085,490

Average noninterest-bearing deposits

115,014

94,453

89,763

84,920

80,376

Average interest-bearing deposits

747,632

768,247

760,409

784,944

801,246

Average total deposits

862,646

862,700

850,172

869,864

881,622

Average federal funds purchased and securities sold under agreement to repurchase

Certain prior-period amounts have been reclassified to conform with current presentation.

Loans acquired through FDIC-assisted acquisitions include loans acquired in the acquisition of The Tattnall Bank in December of 2009, the acquisition of Citizens Bank of Effingham in February 2011 and First Southern National Bank in August 2011. The acquisition of The Tattnall Bank did not involve a loss-share agreement with the FDIC. The acquisitions of Citizens Bank of Effingham and First Southern National Bank involved a loss-share agreements in which the FDIC will, for a specified number of years, reimburse the Bank for 80% of all losses and related expenses on covered assets.